House passes bill that favors credit card holders

WASHINGTON — Responding to anger and frustration from consumers, and a push from President Barack Obama, the House of Representatives Thursday passed sweeping legislation aimed at shielding consumers from sudden credit card rate increases and providing other protections.

By a 357 to 70 vote, lawmakers approved the "Credit Cardholders Bill of Rights Act of 2009," a detailed list of safeguards for consumers who feel battered by recent industry practices.

"This bill will bar some of the more outrageous abuses," pledged Rep. Carolyn Maloney, D-N.Y., who has been trying for years to get the bill passed.

The bill, which got support from 252 Democrats and 105 Republicans and now moves to the Senate for a vote, has these key features:

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Bars retroactive rate increases on existing balances except for those more than 30 days late in payments.

Requires creditors to give consumers a written notice of any rate increase at least 45 days in advance. This provision would become law 90 days after the bill is signed.

Prohibits double cycle billing, a practice that allows companies to charge interest on debt consumers carrying a balance forward have already paid on time. Like most other provisions, this part would go into effect a year after enactment.

Requires creditors to send out billing statements at least 21 days before the due date, up from the current 14.

Bars creditors from issuing cards to most people under 18.

Maloney's effort this year got help from two important sources: President Barack Obama and reports about credit card practices during the recession.

Obama made it clear he wanted the changes, calling credit card executives to the White House last week and reiterating his support for the measure at his prime-time news conference Wednesday.

Maloney's effort was also aided by increasing constituent ire.

A survey of the dozen largest card issuers by the Pew Health Group Safe Credit Cards Project found 93 percent of cards "allowed the issuer to raise any interest rate at any time by changing the account agreement. "

And, it said, some 87 percent of cards "allowed the issuer to impose automatic penalty interest rate increases on all balances, even if the account is not 30 days or more past due. The median allowable penalty interest rate was 27.99 percent per year."

The study found that "current credit card practices place American cardholders at risk of sudden, potentially drastic price increases, which can seriously impair a household's stability and spending power."

The point was driven home Thursday by Molly Gordy of New York City who came to the Capitol to tell lawmakers how the interest rate on a credit card she had held for at least 10 years jumped from 13 percent to 19 percent on exiting balances as well as new purchases.

Gordy explained how she keeps a revolving balance but pays a minimum amount each month, and has not been late on paying her bill for more than three years.

"I called the company and yelled at them, 'Why are you doing this?''' she said. "The customer service representative said it was because of the tough economy."

Such stories resonated in Congress. "We were stung by the brazenness of it all," said House Speaker Nancy Pelosi, D-Calif.

Rep. Pete Sessions, R-Texas, warned that a new law could prompt companies to tighten credit further.And Rep. Jeb Hensarling, R-Texas., said that while he was sympathetic to consumer concerns, "The people who are doing it right, who are working hard, trying to pay their bills, are going to be forced to bail out those who don't."

Supporters dismissed those arguments. "In good times and bad times the (credit card issuers) have been opposed to this legislation," Maloney said, "and we need it now. We are in bad times. Consumers need protection."

The Federal Reserve Board has issued rules that would provide similar protection and would take effect next year, though the legislation goes further. For instance, the legislation bars adding fees for paying by phone, requires companies to file detailed annual reports about card rates and usage with the proper regulatory agency, and bans issuance of cards to most minors under 18.

A Senate version of the bill is expected to be considered soon, possibly next week.